It is true that credit cards can make life much easier. Consumer protection and convenience are some of benefits that come with credit cards. However, if you are not careful, credit cards can land you in serious debt trouble and even destroy your credit history.

Credit history

Besides income and employment, your accessibility to credit is dependent on your previous credit behavior and how your credit rating was scored. Your financial habits, bad or good, are tracked by your creditors who then report to the national credit bureaus. One mistake in debt payment and you may end up with many negative marks on your credit report. The Fair Credit Reporting Act allows collection agencies, credit grantors, employers and insurance companies to get a copy of your credit report.

Therefore, before applying for a loan, major purchase or credit card, you need to get a copy of your credit report. For a small fee, you can obtain a copy of your own credit report. Ensure all the financial transactions and personal information is correct. If you find any mistakes, make copies of any documentation that backs your claim. Write to the credit bureau a letter explaining what the problem is. If your name is confused with someone else’s, enclose a copy of your birth certificate. The law requires the credit bureau to respond within thirty days. Make sure you sort out all inconsistencies before applying for a credit card.

Finding the best deal

You want a card that offers the most benefits but has the lowest cost. How do you get the best deal? You can compare the annual fees, APR and grace periods.

Annual Percentage Rates (APR) is used to measure the cost of credit and is expressed as a yearly rate. This figure is revealed to you when applying for a card, and again when opening an account. It is also noted on every bill received. The card issuer is required to reveal the ‘periodic rate’, which is the rate applied to your outstanding account balance.

An annual fee is basically a flat fee, somewhat like a membership fee, for using your card. However, some cards do not charge yearly membership fees.

Credit card issuers provide a grace time or period during which you can repay your credit card loan without accruing interest. For how long will the loan be free? This varies with every credit card, but the common grace period is 25 days. For many credit cards, the grace period is only applicable if your balance is paid off in full. Any balance that remains after the grace period accrues interest. However, this grace period normally does not apply to cash advances.

Managing your debt

Using your card in a responsible way is the only way you will get to keep it. Knowing your credit limit is vital to staying out of a financial mess. Determine how much debt you can afford. Your credit limit can be determined by looking at your current debt, current history and income. Your monthly debt must be more than 36 percent of your monthly earnings. This information will also help you select the best credit card application. Using credit cards prudently will help maintain your debt within manageable boundaries.

Your credit habits are tracked by lenders, who then send reports to national credit bureaus. This creates a credit history. That is why it’s crucial that you embrace good habits with your credit cards. One of the bad habits to avoid is the temptation to pay only the minimum balance each month. Paying the minimum balance only leads to a much larger debt. Another pitfall to avoid is ‘skip’ payments and late payments.

Using your credit card as a consumer safety net

Using a credit card provides extra legal protection that you will not get when making purchases with cash. If you happen to overpay using cash at the register and don’t notice the mistake until you get home, it might be difficult to get your money back. However, if you overpay using your credit card, you stand a good chance of retrieving your money. You have a right to dispute an unauthorized charge or a billing error. Federal law offers particular procedures that the card issuer can follow to rectify billing errors.

To dispute a mistake, you need to notify the card issuer within 60 days from the date the error appears on your bill. Include your account number, name and a brief description of the error. Send copies of any supporting documentation. It is recommended that you send the letter via certified mail with a return receipt. The card issuer is required to acknowledge receipt within 30 days of receiving the letter and resolve the matter within 90 days. The card issuer is expected to either rectify the mistake and credit your account, or send you an explanation if they view the charge as correct.

If you are not happy with an item bought using a credit card, different rules will apply. As long as you have attempted to resolve the dispute with the trader and are yet to pay the item off, you have a right to dispute the charge. But the purchase has to be greater than $50, and the trader must be located in the same state or not more than 100 miles from your address. What would have happened if you paid in cash? Most likely, you would remain stuck with your purchase.

What to do when you can’t get a card

If you fail the credit scoring test and get rejected for a credit card at various institutions, don’t lose hope. There may be other lenders with different requirements and some that would be willing to offer you a secured credit card.

With secured credit cards, you secure the credit card by depositing money, usually equal your credit line amount, in a CD or savings account. If you fail to make your payments in time, you stand to lose your deposit. When considering a secured card, make an effort to avoid high application and annual fees, and exorbitant interest rates.